driving the day
1. Call me maybe?
On Wednesday, Vice Premier Liu He held a phone call with US Trade Representative (USTR) Katherine Tai.
Some context: This is the first time the two countries’ top trade negotiators have spoken with each other since US President Joe Biden took office.
The official readouts didn’t offer much detail.
Here’s China’s Ministry of Commerce:
- “[T]he two sides had a frank, pragmatic, and constructive exchange…on issues of mutual concern and agreed to maintain communication.”
And here’s the USTR’s office:
- “Ambassador Tai discussed…her ongoing review of the U.S.-China trade relationship, while also raising issues of concern.”
- “[She] noted that she looks forward to future discussions with Vice Premier Liu.”
Get smart: Our contacts in Chinese policy circles says that Beijing now sees trade relations and tariff reductions as a major point of potential cooperation with the US.
Reality check: The Chinese side may be eager to improve trade ties, but given the China-sceptic mood prevailing in the US we’re not sure Washington will play ball.
Get smarter: The fact that Liu represented China in the call suggests rumors about Vice Premier Hu Chunhua replacing Liu as Beijing’s trade envoy to the US were unfounded (see May 14 Tip Sheet).
finance & economics
2. Tencent stays ahead of regulations
On Wednesday, Caixin reported that Tencent is looking to restructure its fintech business into a financial holding company.
- The setup will allow regulators to better monitor the company’s financial risk.
ICYMI: Ant Group has already started this restructuring process (see April 13 Tip Sheet).
There’s no surprise here: In late April, financial regulators told 13 tech companies – including Tencent – to set up financial holding companies.
The big question: How will the restructuring impact Tencent’s business?
Tencent’s president Martin Lau answered this question during the company’s Q4 earnings call in March (The Motley Fool):
- “[The restructuring] does involve organizational change, but it doesn’t really impact the businesses.”
That’s because Tencent has been staying one step ahead of the regulatory hurricane, Lau said:
- “[W]e have been compliant even before these regulations come around.”
- “[W]e have been prudent all along the way.”
Get smart: Unlike Ant Group, Tencent has always tried to portray itself as a willing collaborator with the traditional financial system rather than a challenger to it.
- This approach is putting Tencent in a better position to respond to the sweeping fintech crackdown.
Get smarter: That’s exactly how Beijing wants its tech champions to behave.
- Eventually other platform giants will fall in line without punitive prompting.
politics & policy
3. Xi racks up the phone bills
On Wednesday, Xi Jinping went on a telethon with his counterparts around the globe.
First on Xi’s call list: Spain.
Xi hopes Spain and China can (Xinhua 1):
- “[F]irmly grasp the general direction of the comprehensive strategic partnership, properly control differences, and maintain the basic foundation of win-win cooperation.”
That message got a thumbs up from Spanish President Pedro Sanchez:
- “[A]ll countries need to unite and cooperate to safeguard multilateralism.”
Next up: Montenegro.
Xi wants the two sides to (Xinhua 2):
- “[C]onsolidate political trust and continuously deepen pragmatic cooperation on infrastructure and other fields.”
Montenegrin Prez Milo Dukanovic is cool with that, pledging to:
- “[E]nthusiastically promote the deepening of cooperation between central and eastern European countries and China, and firmly safeguard multilateralism.”
The Grand Finale: Nepal.
Xi’s ready to (Xinhua 3):
- “[S]peed up construction along the Belt and Road and steadily push forward on construction of the Trans-Himalayan Multi-dimensional Connectivity Network.”
Nepalese President Bidhya Devi Bhandari offered music to Xi’s ears:
- “Nepal…firmly supports China safeguarding national sovereignty…and will never permit any force to use Nepal’s territory for anti-China activity.”
- The message: Multilateralism.
- The messenger: Xi Jinping.
- The intended receiver: Joe Biden.
4. Making life fair for the little guys
On Wednesday, Premier Li Keqiang did his thing, presiding over a weekly State Council meeting.
On the agenda (again): Market fairness.
Big companies unsurprisingly remain a key target: Li wants regulators to deepen anti-monopoly and anti-unfair competition enforcement.
- He drew specific attention to the use of “malicious subsidies” and below-market pricing to snatch market share.
But Li also reminded regulators of their second target: The government.
- Local governments also engage in anti-competitive behavior in the form of regional favoritism and protectionism.
- The State Council instituted the Fair Competition Review System (FCRS) in 2016 to address this problem.
Some context: Last year the government moved to fully implement the FCRS.
- It even got its own little paragraph in the 14th Five-Year Plan.
- But it’s possible the focus on platform companies has distracted from this side of the mission.
Get smart: The government’s strategy to clean up the anti-market practices ruining life for the little guy is multi-layered.
Get smarter: The focus on big tech’s use of subsidies and low-pricing techniques could have a big impact.
- Moving fast and burning money is the strategy for growth – can tech companies find an alternative?
5. NPCSC to review Data Security Law
You know what time it is? It’s legislature time.
The next National People’s Congress Standing Committee (NPCSC) meeting will be held on June 7-10.
- NPCSC Chairman Li Zhanshu announced the dates on Wednesday, along with a chunky list of legislation that will be up for consideration or review.
We know what you’re thinking: Isn’t the NPCSC meeting happening unusually early this month?
Why yes it is (NPC Observer):
- “This session is earlier than a regular NPCSC session, which typically takes place near the end of a month.”
- This could be because the NPCSC is trying to jam in another session in June – or because the regular schedule will be derailed around the Party’s 100-year anniversary in July.
On the NPCSC’s agenda: The Data Security Law (DSL).
Some context: The DSL is one of three key laws governing China’s data security and privacy regime, alongside the Cybersecurity Law and the Personal Information Protection Law.
- The DSL primarily looks at data protection through a national security lens.
- It focuses on restricting access to and transfer of “important data” – data related to state or military secrets.
Get smart: The DSL will most likely be passed at this meeting – and looks set to come into force in 2022 following a grace period.
6. Big data, big deal
On Wednesday, Vice Premier Liu He spoke at the opening ceremony of the 2021 China International Big Data Industry Expo.
This event is gigantic: According to organizers, the 2019 edition attracted 400 companies, 20,000 guests, and 120,000 visitors.
- Pft. Nerds.
It’s also a Big Deal. Liu reminded expo-goers of just how important big data is to Xi Jinping (People’s Daily):
- “Human society is entering a new historical stage of the rapid rise of digital productivity.”
- “[Xi] has pointed out that it is necessary to promote the implementation of the national big data strategy and accelerate the construction of a digital China.”
Get smart: China sees data as a critical economic resource for its development.
- Supporting its generation, circulation, and use throughout the economy is a key goal of the top leadership.
What to watch: We are already seeing these concepts starting to get fleshed out in the legal and policy spaces. Important areas to watch include:
- The forthcoming Data Security Law (see entry #5)
- The development of data markets, which are being trialed in several places